A SELF-ORGANIZATION THEORY OF RADICAL ENTREPRENEURSHIP

BENYAMIN BERGMANN LICHTENSTEIN

Whitman School of Management; Syracuse Univ.
Syracuse, NY 13244
E-mail: Benyamin@syr.edu

CANDACE JONES
Boston College

INTRODUCTION

Scholars seeking to develop a theory of entrepreneurial process have recognized that the
phenomenon involves two or more levels of analysis. Thus, rather than simply developing a
multi-level model based on one disciplinary-based theory, our goal is to integrate multiple levels
of entrepreneurial activity by utilizing theories appropriate to each level being explored. We
develop a self-organization theory of entrepreneurship that focuses on “radical entrepreneurship”
– pioneering firms whose emergence in some ways drives the emergence of new markets or
entire new industries (Aldrich and Fiol, 1994). Radical entrepreneurship involves substantive
change within an emerging organization, while also redefining the practices of its institutional
context. It is these shifts across levels that are the focus of our theorizing.
The process model of self-organization theory has been widely used to explain radical
change in dynamic systems, because it identifies and focuses on sequences of change. Sequences
have been central to explaining theories of social and historical processes (Abbott, 1990). As a
whole, process models of self-organization distinguish three interdependent sequences of change
that lead to the creation of new structural order. We refer to these sequences as (1) Increased
Organizing, (2) Tension/Experiments, and (3) Critical Threshold/Order Creation. In our overall
model we sandwich these three sequences of change in between a context of change (at T0,) and
a fourth sequence, referred to as (4) Outcomes of Self-Organization (at T2).

THE CAUSAL SEQUENCE OF SELF-ORGANIZATION

In his broad review of the field, Pfeffer (1982) argued that all theories in organization
science were driven by one of three causal logics. These he termed “agency,” “randomness,” and
“determinism.” Pfeffer argued that these three logics were “mutually exclusive” because they
have different underlying assumptions. Although these three causal logics of change may be
incompatible simultaneously, each the contradictory modes may be sequentially active during
different temporal periods of radical change (Poole and Van de Ven, 1989).

Sequence 1: Increased Organizing as Agency

Agency-based approaches to change underlie the idea that organizations are goal-oriented
entities directed by intentional, boundedly-rational behavior. For example, the implementation of
strategic renewal is often described as an intentional choice, and failures in those transformation
efforts are also attributable to intended behaviors that may have been poorly calculated or

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executed (Kotter, 1995). The agency driver is also used by complexity scholars for implementing
“self-organized” or adaptive evolutionary change (Beinhocker, 1999).
In the self-organization paradigm, the perception of a new economic “potential”
generates “adaptive tension” in a firm, setting up an agency-based, teleological drive to access
these potentials (McKelvey, 2001). Such economic potential are created through dramatic
product-service improvements (Tushman and Anderson, 1986, Henderson and Clark, 1990), or
entrepreneurial organizing that creates new markets (Shane and Venkataraman, 2000). Up to a
certain point this expansion occurs within the current structures and norms of the organization
and its industry; beyond some limit, however, the entrepreneurial system may shift into the
second sequence of change, invoking tension and experiments.

Sequence 2: The Unpredictability of Tension/Experiments

A second primary causal model in management expresses the lack of predictability in

organizing. Pfeffer (1982: 9) describes this as the “almost-random… process view of action.”
This unpredictable, stochastic process is expressed in models of ambiguous decision-making
(Cohen, March and Olson, 1972) and social constructionism (Weick, 1979).
Most management theories of evolution view variation is an essentially a stochastic
process, and models of exploration and search use chance to explain how new routines are
identified and absorbed into the firm (Cohen and Levinthal, 1990). Recent theories of
institutional change suggest that chance elements are core to shifts in archetypes (Greenwood
and Hinings, 1993), institutions (Seo and Creed, 2002), and industries (Leblebici, Salancik,
Kopay, and King, 1991). Stochasticity is also a common driver in complexity models of change
that focus on the probabilistic action of “micro-states” that generate recognizable “macro-state”
patterns of behavior (McKelvey, 1999).
Self-organization theory shows that sustained increases in work activity will cause an
increase in system tension, which reflects the increasing gap between the requirements of the
growing system and the ability of the agents to fulfill those needs (Lichtenstein, 2000). With
increased tension comes an increase in experiments: proposed solutions to an impending
organizational crisis. Experiments are driven by chance – each “random variation” is a search
activity (March, 1991) that aims to resolve local tensions by increasing the system’s overall
capacity in some way (Nicolis and Prigogine, 1989). Given a sustained adaptive tension, more
and more experiments are tried until a threshold is reached – an unpredictable moment when the
system shifts to a third sequence: Order Creation.

Sequence 3: Deterministic Order Creation After a Critical Threshold

A third distinct perspective of change argues that organizations are relatively constrained
entities whose activities are determined by external forces. This deterministic approach of
“external constraint or situational control” by (Pfeffer, 1982: 8) assume that once started, the
direction of adaptation is inevitable, due to the strength of these external forces.
Deterministic approaches are expressed by population ecology, which emphasizes
selection forces over the likelihood of adaptive change. Determinism is the basis of
organizational imprinting (Stinchcombe, 1965), and more recently is invoked in analyzing how
founder’ values become “blueprints” for sets of policies and structures that are highly resistant to
change (Baron, Burton and Hannan, 1996). Complexity scholars invoke deterministic drivers
through system dynamics explanations of organizational change (Sastry, 1997).

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 In self-organization theory most experiments are dampened due to organizational inertia
and resistance to change (Goldstein, 1986). Beyond a critical threshold, however, the system
becomes non-linear, allowing a natural amplification process to proceed (Maruyama, 1963).
Critical thresholds have long been modeled by organizational change theorists (Golembiewski,
Billingsley and Yeager, 1975; Bigelow, 1982; Guastello, 1995) and sociologists (Granovetter,
1978). According to this scholarship, once a threshold is crossed the system becomes driven by
deterministic forces that lead to emergent order (Dooley, 1997). After the trigger point, system-
wide responses become non-proportional to their corresponding inputs, meaning that in some
cases a great deal of effort may yield no change whatsoever (Kotter, 1995), while in some
instances – like the one at Starbucks described below – a small (normal) input can become
amplified, creating the foundation for major system-wide emergence.
These three logics, and their corresponding sequences of change, are illustrated in the
following case of radical entrepreneurship at Starbucks (see Table 1).

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Table 1 about here
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SELF-ORGANIZATION AS RADICAL CHANGE AT STARBUCKS

Context of Radical Change

Entrepreneurs and their new venture creation processes are embedded in social and
cultural contexts that provide opportunities for change and the tools by which entrepreneurs
enact change (Jones, 2001). The context for radical entrepreneurship at Starbucks involved a
declining industry where large volume sales were exchanged for a low quality of coffee.
Although a few small specialty coffee firms offered fresh roasted beans, no one had launched a
successful model of take-out coffee for a select “avante-guard” population (Rindova and
Fombrun, 2000).

Sequence 1: Increased Organizing at Starbucks

At Starbucks, the massive infusion of organizing agency began after Howard Schultz
“saw an enormous opportunity for Starbucks [by] recreating the Italian coffee bar culture in the
U.S.” (Koehn, 2001: 8). After starting his own a gourmet coffee bar in downtown Seattle.
Schultz’s infusion of energy continued with the purchase of the original Starbucks stores. Within
three years he had grown Starbucks to 75 retail stores. Starbucks’ emergence was thus marked by
entrepreneurial agency and goal-oriented growth.

Sequence 2: Tension/Experiments at Starbucks

As predicted by the theory, the increasing mis-match between Starbucks’ rapid expansion
goals and their real operational limitations generated extensive stress and tension from 1987 –
1991. This growing tension generated several organizational experiments, most prominently
their unique word-of-mouth marketing strategy that relied on superior service to catalyze
customer recognition and sales growth. In 1988 Starbucks tried building an new distribution

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channel through a mail-order catalogue. Moreover, every new store was an experiment of sorts,
due to Starbucks’ strategy of “store clustering,” which “increased consumer awareness of the
brand, but often at the cost of cannibalizing existing business” (Koehn, 2001:19).

Sequence 3: Critical Threshold/Order Creation at Starbucks

As suggested by the theory, a trigger point and nucleation process did occur at Starbucks
in 1991 as part of its high-paced and internally stressful expansion into the Southern California
market. According to Schultz, “Almost overnight, Starbucks became chic” (Koehn, 2001:13-14).
In the words of CFO Orin Smith, “One day it seemed [that] a critical mass of customers
discovered Starbucks and stayed with the company. We had been working for a long time… But
we did not know exactly when it would bear fruit. Then virtually overnight, it just popped.”
What “popped” was the emergence of Starbucks as a national brand, supported by the
emergence of new levels of order within the rapidly growing firm. New structures emerged to
handle the prospect of rapid expansion including “… financial, accounting, legal, planning, and
logistics [systems] the company would require…to become a national business”(Koehn, 2001:
13). An IT network linking all stores to a central computer was installed, a new roasting plant
was built, and corporate offices were expanded. At the same time Starbucks became a distributor
for major corporate accounts including Horizon Air, Nordstroms, and later Barnes and Noble.
These structural changes were linked to a significant shift in the firm’s image and
identity. The meaning of Starbucks expanded to a new level, as people began thinking of
Starbucks coffee as an “affordable luxury,” and the chain developed a “near-cult status” (Koehn,
2001: 14). Finally Starbucks also experienced the emergence of a new identity: the company
became a public corporation through an IPO in July of 1992 that yielded $29 million in net
proceeds.

Outcomes of Self-Organization

The outcomes of self-organization at Starbucks demonstrate a remarkable expansion of

capacity. From 1990 to 1992 Starbucks nearly doubled to 154 stores and 2000 employees; and
sales increased by almost 300% to $103 million. By 1995 more than 3,000,000 people per week
visited Starbucks, and the average customer frequented a company store 18 times per month.
The multi-level nature of self-organization is exemplified by Starbucks, which helped the
emergence of the specialty coffee industry. Rather than taking customers away from existing
independent coffeehouses, the presence of a Starbucks tended to increase the overall market for
specialty coffee in a region (Helliker and Leung, 2002). By 1993 the U.S. supported more than
4500 coffeehouses, a six-fold increase from 1979, and sales of ready-to-drink coffee rose almost
3,000% in the early 1990s.
The self-organization theory provides a useful framework for explaining change and
order creation at Starbucks: the early push toward Increased Organizing was driven by Schultz’s
entrepreneurial agency; Tension and Experiments involved many elements of chance, and once
the firm passed a critical transition, there appeared to be a deterministic drive toward further
Order Creation.

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 DISCUSSION AND CONCLUSION

The three sequences of self-organization are linked together through path dependence,
where “the final pattern depends on the particular choices that happen to be made [throughout]
the sequence” (Goldstone, 1988: 834). Self-organization not only requires the presence of all
three sequences, it depends on their being ordered in a specific way (a path). The changes at
Starbucks also represent a process of path creation (Garud and Karnoe, 2001), wherein a new
landscape is created as agents probe their embedding structures through “mindful deviation.”
Up to now much of the research on entrepreneurial dynamics has focused on the internal
drivers of new venture creation, and on external forces that constrain and enable entrepreneurial
activity. This dichotomy is well expressed by Thornton (1999: 20): “The supply-side school
focuses on the availability of suitable individuals to occupy entrepreneurial roles; the demand-
side, on the number and nature of the entrepreneurial roles that need to be filled.” This
characterization skips over an emerging third school – researchers who are exploring the
systemic process of new venture creation and industry emergence. Self-organization provides a
theoretical model for examining these systemic processes, while linking them to the agency of
entrepreneurial individuals and teams, the chance elements of organizational experiments, and
the deterministic forces of markets and industries. As such, self-organization offers a mode of
theorizing that may be a useful step in forwarding research on radical entrepreneurship.

REFERENCES AVAILABLE FROM FIRST AUTHOR

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TABLE 1: SEQUENCES AND CAUSAL LOGICS OF CHANGE IN SELF-
ORGANIZATION

Self SEQUENCE 1: SEQUENCE 2: SEQUENCE 3:

Organization Increased Organizing Tension/Experiments Critical Threshold Æ
Sequences Order Creation

Elements of
Theory
Driver of Agency Chance Determinism
Change
Process (how) Economic opportunity Current system structures After the critical threshold,
motivates new level of cannot manage increased non-linearity within the
organizing activity. flow of resources. system amplifies rather than
Opportunity creates Experiments are initiated to dampens normal fluctuations.
“adaptive tension” that solve impending “crisis’ in One fluctuation becomes the
pushes organization system. These experiments seed for a new context and
beyond its current precipitate a critical “meaning” to emerge in the
boundaries. threshold of emergence. system, followed by a re-
creation of structures,
processes, relationships, etc.
Who & Why Change agent drives Actors experiment and Environmental (institutional)
system toward chance defines outcomes. constraints determine path
envisioned future. Outcomes may have no and result of change.
connection to intent.

What changes Identity; strategy Decisions; routines Structures; organizational

fields
When When aspirations are Temporal dynamics limited Dependant on niche density
(temporal not met. Gap between in theory. Past and future and concentration.
dynamics) aspirations and may be encapsulated in Transposition of practices to
achievements trigger current decision (Abbott, new areas are spread through
search for new 1990). diffusion mechanisms.
solutions.

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